"Record One" Royalties
It is customary for producers, at some point, to be paid for
all records sold, meaning that recording costs are not charged
against their royalties (while those costs are always charged
against artists' royalties). These are called record one royalties
because they are paid from the first record that the company
sells. (All producers have to recoup any advances they have
received, but if you think of these advances as a prepayment
of royalties, this is the same as getting royalties on all
records). The key question is when the record one royalties
are paid, and there are three methods:Superstar Producers
Superstar producers are paid for every record sold without
recoupment of anything (except their advances). Let's look
at an example: Suppose an artist's "all-in" royalty (artist
& producer combined) is 60-cents a record, and the producer's
royalty is 10-cents a record. Assume the producer gets a $10,000
advance and that the recording costs (including the producer's
advances) are $120,000. If the producer is paid from record
one, and the album sells 150,000 units, the producer will
get $15,000 in royalties (10-cents x 150,000 units). Since
he already got a $10,000 advance, this is deducted, and he
gets the balance of $5,000.

Units Sold

150,000

Producer Royalty

x $.10

$15,000

Less Advance

- $10,000

Net Payable

$5,000

So as not to mislead you, you should know that it's extremely
difficult for even superstar producers to be paid from record
one.

Hot Producers
Hot producers can get a royalty that is retroactive to record
one after recoupment of recording costs at the combined rate.
What this means in English is that (a) before recording costs
are recouped, the producer gets no royalties at all; (b) once
the recording costs are recouped, the producer gets paid from
record one "retroactively" (meaning the company goes back
and pays on sales previously made that didn't bear royalties
at the time of sale.); and (c) the recording costs are recouped
at the artist's "all-in" rate (the combined artist & producer
rate). This is easier to see with numbers:Assume
the same facts as in the first example. By changing the deal
so that the producer is paid retroactively, however, the producer
makes less. This is because, at 150,000 units, the artist
will have only recouped a total of $90,000 ($0.60 x 150,000=$90,000),
which is short of the $120,000 recording costs. Thus, the
recording costs have not been recouped, and the producer is
not entitled to any royalties. So, instead of the additional
$5,000 paid in the first example, the producer gets nothing
(except, of course, the $10,000 advance).If
that album later sells another 50,000 copies (a total of 200,000
units), the recording costs are now recouped (200,000 x $0.60
= $120,000 in costs), which means the producer gets paid for
all 200,000 units ($20,000, which is $0.10 x 200,000 units),
less, of course, the $10,000 advance. At this stage, note
that the producer is in the exactly same position as if he
or she had been paid from the first record sold.Most Producers
Most producers are paid retroactively after recoupment of
recording costs at the net rate. This means that, instead
of recouping at the combined producer & artist (all-in) rate,
the recoupment is only at the artist's rate after deducting
the producer (i.e. the all-in rate "net" of the producer's
royalty). In our same example, this would mean $0.60 less
the $0.10 producer's royalty, or $0.50. Thus, under this example
at 200,000 units, the producer still doesn't get any royalties,
because $0.50 x 200,000 equals only $100,000 which is short
of the $120,000 needed to recoup the recording costs.In
this case, the producer wouldn't get his record one royalties
until the artist sells a total of 240,000 units ($0.50 x 240,000
=$120,000). Once this sales level is reached, the producer
is paid retroactively ($24,000, which is $0.10 x 240,000),
less the $10,000 advance. At this point, re is no difference
between this deal and the deals under the first two examples.Other Royalty Computations
Except for the record one aspect, producers' royalties are
customarily calculated in exactly the same way as the artists'
(except for home video). This means they get the same packaging
deductions, the same "free goods" reduction, and, the same
proportionate reduction for foreign, budget, mid-priced, CDs,
etc. For example, if an artist gets 75% of his or her U.S.
rate in England, the producer will get 75% of his or her U.S.
producer rate in England.Home Video Royalties
For home video devices, producers generally get half of their
otherwise applicable rate. The theory is that the Master is
only half of the product (the video portion is the other half).
In part two, we will further
explore producer deals and discuss both hiring and paying
the producer.